October manufacturing output saw another month of decline, according to the new edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).
The report’s benchmark reading, the PMI, at 48.7 (a reading of 50 or higher indicates growth), was off 0.4% compared to September, contracting, at a faster rate, for the eighth consecutive month, with the overall economy growing, at a slower rate, for the 66th consecutive months.
The October PMI came in 0.3% below the 12-month average of 49.0. with January’s 50.9 and July’s 48.0 marking the respective high and low readings for that period.
ISM reported that six manufacturing sectors saw growth in October, including: Primary Metals; Food, Beverage & Tobacco Products; Transportation Equipment; Plastics & Rubber Products; Fabricated Metal Products; and Nonmetallic Mineral Products. Sectors seeing contraction included: Textile Mills; Apparel, Leather & Allied Products; Furniture & Related Products; Paper Products; Printing & Related Support Activities; Wood Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Chemical Products; Machinery; Miscellaneous Manufacturing; and Computer & Electronic Products.
ISM cited the following for the report’s key metrics in October:
- New Orders, at 49.4, rose 0.5%, contracting, at a slower rate, for the second consecutive month, with four sectors reporting growth;
- Production, at 46.0, rose 0/7%, contracting after growing in September, with four sectors reporting growth;
- Employment, at 45.3, increased 1.5%, contracting, at a slower rate, for the ninth consecutive month with three sectors reporting growth;
- Supplier Deliveries, at 54.2 (a reading of 50 indicates slower deliveries), slowed, at a faster rate, for the third consecutive month, with 12 sectors reporting slower deliveries;
- Inventories, at 45.8, fell 1.9%, contracting, at a faster rate, for the sixth consecutive month, with five sectors reporting higher inventories;
- Customers’ Inventories, at 43.9, were down 0.2%, coming in too low, at a slower rate, for the 13th consecutive month, with three sectors reporting inventories as too high;
- Prices, at 58.0, down 3.9%, increasing, at a slower rate, for the 13th consecutive month, with 14 sectors reporting higher prices; and
- Backlog of Orders, at 47.9, contracting, at a slower rate, for the 37th consecutive month, with six sectors reporting growth
Tariffs and the economy were once again the main themes cited in ISM panelist comments.
“Business continues to remain difficult, as customers are cancelling and reducing orders due to uncertainty in the global economic environment and regarding the ever-changing tariff landscape,” a Chemical Products panelist stated.
And a Computer & Electronic Products panelist said that the unpredictability of the tariff situation continues to cause havoc and uncertainty on future pricing/cost, while adding that even with the tariffs, the cost to import in many cases is still more attractive than sourcing within the U.S. Challenges with tariffs on production equipment necessary for internal production makes it difficult to justify expansion of capacity.
In an interview with LM, Susan Spence, Chair of the ISM’s Manufacturing Business Survey Committee, said that, in some ways, this report is similar to the September edition; albeit with some minor gains for its demand indicators, New Orders, New Export Orders (up 1.5%, to 44.5), Backlog of Orders and Customers’ Inventories.
“While there were some gains, they all continued to contract,” she said. “We are going in circles, with things stagnating. The recent interest rate cuts don’t seem to have made a difference, as our panelists had indicated they would not. Investment in bringing manufacturing’s footprint back to the U.S. have not happened, because tariffs have made it too expensive to import, for many of the same reasons covered in the report. A few months back new orders saw gains, followed by some gains in production and backlog of orders, but I really don’t see that continuing until we see two-to-four months of growth in new orders.”
And she also noted that the report’s data in recent months are concerning, amid some sequential gains, as there does not appear to be any long-term optimism. To that end, she noted how 58% of manufacturing GDP contracted in October, down from September’s 67, with the percent of GDP in strong contraction—at 45% or lower—is at 41%, rising 13% over September—with two of the six largest manufacturing sectors, Food, Beverage & Tobacco products, and Transportation Equipment, growing in October.
